This time of year, 5 years ago, the world was collapsing, but none of us knew how bad it was really going to get or how much it would expose the truth of the world we live in. At the time, I was managing a small portfolio for myself and a few rich white guys. I was running a multi-strategy approach that was part macro and mostly micro event driven. I was well prepared for 2008, in part, because my approach allowed for enormous flexibility, but I had no idea how much it would turn the world upside down. It took me by surprise and I was bearish in the second half of 2008!
When Lehman went bankrupt all the correlations went to 1. It didn’t matter if you were running an event driven strategy or what. For about 6 months there it felt like the world turned into one big emotional rollercoaster ride and no matter what approach you used to navigate the markets you couldn’t get off that rollercoaster. It was at this time that something started to become increasingly obvious to me. You see, I had been adhering to a stock pickers mentality for years now. And it had treated me quite well, but 2008 proved to me that the world was no longer a stock picker’s market. I was a stock picker living in a global macro world. And if I didn’t adapt, evolve and learn macro then I was lost at sea. And that’s what macro really is. Macro is the dominant force driving the direction of the economy and markets. Not understanding the macro is a lot like being lost at sea. If you don’t understand the big macro trends then you are just a speck in a massive storm of colliding economic trends.
So I evolved. I adapted. I basically “retired” for 6 months in 2009 as a I reworked my entire approach to the world and tried to learn more and more about the macro trends that were driving the world. I read more in those first six months of 2009 than I had in years. For the knowledge hungry, 2009 was like an all you can eat buffet. And I went back for seconds and thirds and fourths and fifths.
And here we are 5 years later. Yes, it looks like a stock picker’s world again. Yes, it looks like macro is taking a back seat to micro again. But I assure you it has not. The seas may have calmed and you might feel more in control of the macro trends, but I assure you they’re still out there. The world has become a macro place and we’re all just floating around in it. The problem is, most of us don’t realize we’re micro thinkers in a macro world until the storm becomes so powerful that you realize just how small we all are. And that’s what Lehman taught me. It’s a macro world and we’re just floating around in it.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.